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Warren Buffett Bought This Stock. Should You?

Lawrence Lewitinn

Talking Numbers•June 21, 2013

Warren Buffett Bought This Stock. Should You?

In times of uncertainty, it can be useful to follow the lead of the best investors. One of Warren Buffett's recent investments, Chicago Bridge & Iron, is down 10%. Should you buy along with Buffett or is this stock headed down more?

Last month, tucked away in Berkshire Hathaway’s 13F filings, it was reported that Warren Buffett’s company bought $404 million worth of Chicago Bridge & Iron (CBI) stock. That represented about 6% of the Dutch-based energy infrastructure company.

When news of the Buffett’s purchase spread, shares in the company moved up, reaching its record highs of $64.91 a few days later. The excitement has since worn off and the stock is now down nearly 11% from that high, to around $58 per share.

And that price drop has one analyst excited about the stock.

Patricia Edwards, Principal and Chief Investment Officer at Trutina Financial, thinks Buffett got it right with CB&I. Edwards finds the company’s balance sheet to be strong with an 18.7% return on equity. And, there’s something in CB&I’s future that also makes Edwards bullish: its revenues. “There’s a huge $25.5 billion backlog that isn’t appreciated by the Street,” says Edwards. The company’s revenues over the last twelve months were $6.5 billion.

Not everyone thinks Buffett’s investment will pay off.

CNBC contributor Abigail Doolittle, Technical Analyst at The Seaport Group, thinks Buffett is going to lose most of his investment in CB&I. “It’s a chart of broken trends,” says Doolittle, looking at the stock’s price movement over the last twelve months. Doolittle’s assessment is based on the double top patterns – first in March, then with the Buffett news in May. Should the price break below $51, Doolittle believes its next target is $39. She doesn’t think it will stop there, either.

Doolittle believes the long-term chart is targeting as low as $5 per share. “Do I think CBI is going to $5? No,” says Doolittle. “But I do think CBI is rolling over.”

Will Buffett lose most of his $404 million investment on CB&I or is now a buying opportunity? Watch the video above to hear Edwards and Doolittle square off on this stock.